Only the viable will survive: ATO

Tax officials are using a new assessment tool to weed out businesses that are not viable, singling them out for tougher action as they chase a bulging $15 billion debt.

“If we don’t follow up people that aren’t viable, then what you really have is an unfair system," tax commissioner
Michael D’Ascenzo
told an audience of small business operators yesterday.

Mr D’Ascenzo said the Australian Taxation Office continued to act with empathy for businesses facing genuine financial problems, but with debt ballooning in the economic downturn – by 12 per cent in 2009 and 21 per cent in 2010 – it had no choice but to chase the debt of businesses that were not viable.

The ATO has developed a tool to identify which businesses fall on the wrong side of viability, using financial information such as bank statements and balance sheets.

“It operates similarly to the models used by banks in making decisions on the provision of finance or credit," Mr D’Ascenzo said. The Tax Office had a duty to take action – including bankruptcy – when a business was trading while insolvent, he added.

Jon Clarke, partner of law firm Cowell Clarke, said the Tax Office had become more aggressive in collecting debts in the past six to 12 months, including via bankruptcy notices.

Mr D’Ascenzo rejected the notion that the Tax Office had been aggressive but said it was using its tools to ­rigorously determine businesses doomed to fail.

“Yes, you will see more businesses exiting and that’s probably not a bad thing," he said. “It’s a balance between empathy and fairness."

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The approach differs from the soft touch applied during the financial crisis, when the Tax Office was quick to grant flexible payment arrangements, often interest-free. At June 30 this year, nearly 42,000 interest-free arrangements worth $547 million remained in place.

A key plank of the Tax Office’s initiatives to chase debts is to create a level playing field for businesses, something emphasised in its compliance program for the 2012 tax year.

Mr D’Ascenzo said his office was focusing on businesses that under­reported income and owners that entered phoenix arrangements, in order to protect “honest businesses".

Reflecting on the compliance efforts of 20 years ago, he said the Tax Office could now target businesses using its sophisticated data-matching capabilities rather than the old “random approach to audits".

Of the 600,000 small businesses whose income was tracked under the controversial cash benchmark regime, about 46,000 fell outside, he said, adding some had good reasons.

The Tax Office recognised that smaller businesses were individuals. “We will try to treat you as a person if you try to do the right thing," Mr D’Ascenzo said.

It is understood the Tax Office is working towards making the viability assessment tool available to businesses online.

Council of Small Business of Australia chief
Peter Strong
said the tax commissioner had “put a face on small business".

He recalled a previous discussion with the Tax Office about family breakdowns being the main cause of outstanding GST returns.

“All of a sudden Michael banged the table quite loudly . . . and said ‘these people haven’t done anything wrong, they haven’t stolen anything, we need to find a way to help them’.